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Derivative Instruments

6 Months Ended

Jul. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

We conduct business on a global basis in multiple foreign currencies, subjecting Workday to foreign currency risk. To mitigate this risk, we utilize derivative hedging contracts as described below. We do not enter into any derivatives for trading or speculative purposes.

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy because the valuation inputs are based on quoted prices and market observable data of similar instruments in active markets, such as currency spot and forward rates.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

We are exposed to foreign currency fluctuations resulting from customer contracts denominated in foreign currencies. We have a hedging program in which we enter into foreign currency forward contracts related to certain customer contracts. We designate these forward contracts as cash flow hedging instruments since the accounting criteria for such designation have been met.

Foreign currency forward contracts designated as cash flow hedges are recorded on the condensed consolidated balance sheets at fair value. Cash flows from such forward contracts are classified as operating activities. Gains or losses resulting from changes in the fair value of these hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”) on the condensed consolidated balance sheets and will be subsequently reclassified to the related revenue line item on the condensed consolidated statements of operations in the same period that the underlying revenues are earned. As of July 31, 2021, we estimate that $15 million of net losses recorded in AOCI related to our foreign currency forward contracts designated as cash flow hedges will be reclassified into income within the next 12 months.

As of July 31, 2021, and January 31, 2021, we had outstanding foreign currency forward contracts designated as cash flow hedges with total notional values of $1.4 billion and $1.3 billion, respectively. The notional value represents the amount that will be bought or sold upon maturity of the forward contract. All contracts have maturities of less than 49 months.

Foreign Currency Forward Contracts Not Designated as Hedges

We also enter into foreign currency forward contracts to hedge a portion of our net outstanding monetary assets and liabilities. These forward contracts are intended to offset the foreign currency gains or losses associated with the underlying monetary assets and liabilities and are recorded on the condensed consolidated balance sheets at fair value. These forward contracts are not designated as hedging instruments under applicable accounting guidance, and therefore all changes in the fair value of these forward contracts are recorded in Other income (expense), net on the condensed consolidated statements of operations. Cash flows from such forward contracts are classified as operating activities.

As of July 31, 2021, and January 31, 2021, we had outstanding forward contracts not designated as hedges with total notional values of $97 million and $175 million, respectively.

The fair values of outstanding derivative instruments were as follows (in thousands):

						Condensed Consolidated Balance Sheets Location						July 31, 2021						January 31, 2021
Derivative assets:
Foreign currency forward contracts designated as cash flow hedges						Prepaid expenses and other current assets						$	5,194					$	2,073
Foreign currency forward contracts designated as cash flow hedges						Other assets						5,378						173
Foreign currency forward contracts not designated as hedges						Prepaid expenses and other current assets						390						975
Foreign currency forward contracts not designated as hedges						Other assets						11						—
Total derivative assets												$	10,973					$	3,221
Derivative liabilities:
Foreign currency forward contracts designated as cash flow hedges						Accrued expenses and other current liabilities						$	18,156					$	23,647
Foreign currency forward contracts designated as cash flow hedges						Other liabilities						15,501						24,586
Foreign currency forward contracts not designated as hedges						Accrued expenses and other current liabilities						1,178						1,162
Foreign currency forward contracts not designated as hedges						Other liabilities						42						61
Total derivative liabilities												$	34,877					$	49,456

The effect of foreign currency forward contracts designated as cash flow hedges on the condensed consolidated statements of operations was as follows (in thousands):

						Condensed Consolidated Statements of Operations Location						Three Months Ended July 31,												Six Months Ended July 31,
												2021						2020						2021						2020
Total revenues						Revenues						$	1,260,361					$	1,061,967					$	2,435,394					$	2,080,352
Amount of gains (losses) related to foreign currency forward contracts designated as cash flow hedges						Revenues						(1,667)						5,278						(1,149)						9,764

Pre-tax gains (losses) associated with foreign currency forward contracts designated as cash flow hedges were as follows (in thousands):

						Condensed Consolidated Statements of Operations and Statements of Comprehensive Income (Loss) Locations						Three Months Ended July 31,												Six Months Ended July 31,
												2021						2020						2021						2020
Gains (losses) recognized in OCI						Net change in market value of effective foreign currency forward exchange contracts						$	16,031					$	(52,558)					$	11,778					$	(15,765)
Gains (losses) reclassified from AOCI into income (effective portion)						Revenues						(1,667)						5,278						(1,149)						9,764

Gains (losses) associated with foreign currency forward contracts not designated as hedges were as follows (in thousands):

						Condensed Consolidated Statements of Operations Location						Three Months Ended July 31,												Six Months Ended July 31,
												2021						2020						2021						2020
Foreign currency forward contracts not designated as hedges						Other income (expense), net						$	2,011					$	(4,040)					$	1,819					$	1,373

We are subject to netting agreements with all of the counterparties of the foreign exchange contracts, under which we are permitted to net settle transactions of the same currency with a single net amount payable by one party to the other. It is our policy to present the derivatives gross on the condensed consolidated balance sheets. Our foreign currency forward contracts are not subject to any credit contingent features or collateral requirements. We manage our exposure to counterparty risk by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

As of July 31, 2021, information related to these offsetting arrangements was as follows (in thousands):

						Gross Amounts of Recognized Assets						Gross Amounts Offset on the Condensed Consolidated Balance Sheets						Net Amounts of Assets Presented on the Condensed Consolidated Balance Sheets						Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets												Net Assets Exposed
																								Financial Instruments						Cash Collateral Received
Derivative assets:
Counterparty A						$	724					$	—					$	724					$	(724)					$	—					$	—
Counterparty B						3,887						—						3,887						(3,887)						—						—
Counterparty C						2,029						—						2,029						(2,029)						—						—
Counterparty D						3,771						—						3,771						(3,771)						—						—
Counterparty E						562						—						562						(562)						—						—
Total						$	10,973					$	—					$	10,973					$	(10,973)					$	—					$	—

						Gross Amounts of Recognized Liabilities						Gross Amounts Offset on the Condensed Consolidated Balance Sheets						Net Amounts of Liabilities Presented on the Condensed Consolidated Balance Sheets						Gross Amounts Not Offset on the Condensed Consolidated Balance Sheets												Net Liabilities Exposed
																								Financial Instruments						Cash Collateral Pledged
Derivative liabilities:
Counterparty A						$	6,445					$	—					$	6,445					$	(724)					$	—					$	5,721
Counterparty B						15,043						—						15,043						(3,887)						—						11,156
Counterparty C						12,211						—						12,211						(2,029)						—						10,182
Counterparty D						1,114						—						1,114						(3,771)						—						(2,657)
Counterparty E						64						—						64						(562)						—						(498)
Total						$	34,877					$	—					$	34,877					$	(10,973)					$	—					$	23,904

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- References

No definition available.

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- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-URI http://asc.fasb.org/topic&trid=2229140

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-SubTopic 40
-Section 50
-Paragraph 5
-Subparagraph (f)
-URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008

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